Advancing sustainable growth in the United States and China

China’s Uphill Battle to Promote Electric Vehicles


By Nicholas Wah

Hard sell: Despite government subsidies for electric cars, Chinese buyers are holding off
Hard sell: Despite government subsidies for electric cars, Chinese buyers are holding off

 

The Chinese government has many modes of attack in its war on pollution. Among other initiatives, it has established caps on coal consumption for a number of provinces, it is investing heavily in the deployment of clean energy, such as wind and solar power, and it is increasing the penalties that firms will have to pay for exceeding pollution limits. Another weapon in the fight is the adoption of clean energy vehicles, in particular electric cars. In large cities, such as Beijing and Shanghai, moving away from gasoline-fueled automobiles is an important part of addressing the air quality challenge. According to China’s Ministry of Environmental Protection, as much as 30 percent of Beijing’s air pollution comes from vehicle emissions.

To encourage the purchase of electric cars, the government has offered subsidies of 50,000-60,000 Yuan ($7,900-$9,400). In 2009, China established targets for pure electric and hybrid electric vehicles of 500,000 by 2015 and 5 million by 2020. It also launched a “ten cities, thousand vehicles” program, in which each of ten cities would develop and sell 1000 electric vehicles. By 2011, the list of cities had expanded to twenty-five.

However, the Chinese government has had a tough time persuading people to buy electric cars. By the end of 2012, only seven of the twenty-five cities had met their 1000 car target. And in 2013, Chinese consumers purchased only 17,600 hybrid and electric vehicles. While 2014 brought better news, with 74,800 new energy vehicles sold, this number included vehicles that did not meet highway driving standards (because, for example, they lacked the necessary safety features and/or could only travel 35 mph).

Reasons for slow adoption in China include price and fashion. But several structural problems, including the uneven distribution of charging stations, have hindered the spread of electric cars, too. In some cities, there is too little incentive to develop charging infrastructure; in others, there is too much infrastructure development. As finance magazine Caixin reported, “Companies went crazy by building huge numbers of charging stations all at once.” Even worse, different Chinese carmakers and utilities have developed different charging standards.

By the end of 2013, China had constructed just over 400 charging stations; in contrast, the United States had more than 20,000. And the Netherlands averages 287 more charging stations per 1,000 km2 than China does. High-end electric car company Tesla recently cut almost one-third of its 600 employees in China, primarily because there was not enough infrastructure to support high-end electric cars.

According to a study in the Stanford Social Innovation Review, cities have inflated their statistics to receive greater preferential tax and financial treatment, and many cities have put in place regulations that serve their own electrical vehicle industry and prevent competition from outside the region.

Despite the setbacks, the Chinese government is experimenting with several more initiatives to boost electric vehicle production. In mid 2014, the government opened the power grid and electric vehicle charging equipment markets to private investors; it mandated that during 2014-2016, at least 30 percent of all government cars purchased annually must be battery powered, electric hybrids or another type of non-polluting vehicle. (These will all have to be manufactured in China, although they can be foreign produced.). And it is forcing foreign manufacturers and their local partners to produce electric vehicles—so there will be as many as 40 models available. According to car manufacturers, producing an EV has become a requirement if a company wants government approval to build factories.

China will also issue licenses to companies outside the traditional automobile manufacturing sector to allow them to manufacture electric cars in order to spur competition. As an added driver of change, China’s fuel economy standards for automobiles will require a 28 percent drop in average per vehicle fuel consumption by 2020; at the same time, Beijing is reducing subsidies by 20 percent in 2017-2018 and by 40 percent in 2019-2020.

Beijing is also putting in place incentives for consumers to buy electric cars. During the year leading up to April, 2016, for example, electric car owners will not be required to observe odd and even license plate policies for driving on highways. In both Norway and California, studies have demonstrated that access to HOV lanes is one of the most important incentives for consumers to purchase electric vehicles. The government also removed a 10 percent domestic tax on electric cars, and 20 percent of new car licenses are reserved for electric cars. Shanghai is offering free license plates (which typically cost $12,000) for people buying Teslas.

Despite all these incentives, electric vehicles are still a hard sell. In Beijing, in the first four months of 2015, fewer than 5500 people applied for the 10,000 clean energy license plates, while almost 6.2 million applied for the not quite 37,000 regular license plates.

There is not one silver bullet that will ensure the success of electric cars in China. As China’s leaders survey the international landscape, there are a number of policy options they can consider for future adoption:

  • Experiment with different forms of taxation to discourage the use of conventional fuel automobiles and support use of electric cars. A study of ten countries found that the most successful EV markets offer a wide range of policies, such as raising taxes on conventional vehicle purchases, a CO2-based vehicle tax, and a gas tax.
  • Increase the percentage of electric cars that Beijing and other local governments purchase for official use. This is important both in real terms and as a symbol for what the public should do as well.
  • Expand the range of benefits for electric car users. Norway gives its new energy vehicle drivers a package of benefits, exempting them from vehicle fees, road taxes, parking fees, and toll payments. It also allows them to use bus lanes.
  • Develop an electric vehicle publicity campaign featuring prominent Chinese celebrities, such as Yao Ming, to bring status to the electric vehicle market.
  • Encourage partnership with foreign ventures both in China and in other countries. Other countries with more mature electric vehicle development can serve both as a source of technological innovation and as a market for Chinese-manufactured EVs.

While intellectual property concerns remain paramount for some western EV companies, there are positive developments as well. To further the development of the Chinese electric car, “Le Supercar,” which is due out in 2016, for example, the company hired 200 people in the United States who had previously worked at companies such as GM, BMW, and Tesla. In addition, a Richmond-based company Evatran Group received a $1.6 million investment from Zhejiang VIE Science and Technology Company to bring its wireless electric vehicle charging product to China. Much of Evatran’s initial funding derived from the U.S. government to promote collaboration among Evatran, General Motors and Toyota to integrate the technology into those companies’ vehicles. Chinese company BYD, meanwhile, has developed an innovative partnership with Uber in which Uber drivers in Chicago can lease BYD’s e6 battery-powered crossover by the week. Thus far, there are 20-odd such cars on the road.

It is possible that with China’s economy slowing, growth in the electric vehicle market will also slow. However, the pressure of China’s severe air pollution problem, climate change, and public health concerns should encourage the Chinese government and people to continue to support the further development of electric and other new energy vehicles.

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